No Brexit deal threatens food and drinks sector

The UK’s government’s Business, Energy and Industrial Strategy (BEIS) select committee has concluded in a report that a no deal outcome from Brexit negotiations would be ‘disastrous’ for the UK food and drinks industry.

The report, ‘The Impact of Brexit on the Processed Food and Drink Sector’, was published on 22 April 2018 and is the seventh report created by the committee in the 2017-2019 session.

The BEIS committee said that the food and drinks sector would ‘undeniably suffer’ from reverting to World Trade Organisation (WTO) tariffs if the UK ends up in a no deal situation.

The sector is subject to significantly higher WTO tariffs than other sectors, for example 20% for drinks, and the committee estimates this situation could mean a higher than 8% reduction in output for the whole sector. Soft drinks would be the part of the UK drinks sector most affected by WTO tariffs because they are mainly exported to the EU.

The vast majority of the committee’s expert witnesses said no deal would not be an ‘acceptable outcome’ for the sector. The Food and Drink Federation said no deal would be ‘pretty catastrophic’ for the industry and ‘anybody who thinks that a disorderly exit is anything other than very, very bad for the UK, and in particular for UK shoppers, is wrong’.

This situation would hinder the ability of the UK food and drinks sector to remain competitive, which would negatively affect consumers, as well as businesses and their employees.

Diageo said: “Our concern is not directly for Diageo, but for the supply chain. Those are the people who will be affected, because there may be tariffs on the dairy inputs moving across the border, and there will be administration delays that we, as a large company, can swallow, but smaller suppliers may find more difficult.”

The report says ‘striking a free trade agreement with the EU should be the number one priority in order to protect the UK processed food and drink sector’s competitiveness in the short term’.

Experts in the industry also saw competitiveness as being affected by additional delays and bureaucracy at the UK-EU border because of how many cross-border just-in-time supply chains there are in the food and drink sector. The UK-Ireland border is of particular concern.

The GMB trade union told the BEIS select committee the industry may struggle to import fresh products ‘possibly having a disproportionate impact on [food and drink sector] producers whose production and product lives are exceptionally time sensitive’.

Diageo said: “Baileys is manufactured in plants on both sides of the [Irish] border. The dairy that we use in Baileys is sourced from both sides of the border. We buy 11 per cent of Ireland’s cream output to make Baileys.

“We could manage a hard border, of course—we are a large company—but it would be very unwelcome. We move about 18,000 trucks a year over that border, so even small hold-ups to process those truck movements would be really unwelcome.”

“Ireland is one of biggest priorities in the negotiation. We run the island as one business, and we manufacture our products on both sides of the border in a seamless supply chain.”

Nestlé said: “The fact that we can move things freely between the UK and Ireland in a frictionless way without tariffs is fundamental to our business model and our business in Ireland.

“We would absolutely have concerns and real issues if that frictionless border changed or if we started to see tariffs between the Republic of Ireland and the UK.”

According to the report, the food and drinks industry is the largest manufacturing sector in the UK and is worth approximately £28.8bn to the UK economy. It employs hundreds of thousands of people across the country; approximately one third are EU Nationals. Exports were worth £22bn in 2017, with drinks being the only sub-sector where exports exceeded imports.

The sector is more integrated into the EU than others because it has many cross-Europe supply chains and processing facilities in both the UK and other EU countries.

The BEIS select committee attributes the success of the industry to UK’s location in the EU Single Market and Customs Union. 60% of the sector’s exports are to the EU and seven of the top 10 markets are EU countries.